OceanaGold's Pac Rim subsidiary chided by World Bank disputes body over El Salvador arbitration

OceanaGold's Reefton gold processing plant.

OceanaGold's Pac Rim Cayman subsidiary has been ordered to pay US$8 million to El Salvador to cover the country's legal fees and costs in a long-running arbitration after the mining company failed to obtain an exploitation concession.

The World Bank's International Centre for Settlement of Investment Disputes (ICSID) found in favour of the government of El Salvador in the case brought by Pac Rim, which OceanaGold described as an indirect subsidiary. OceanaGold has owned Pac Rim since acquiring Pacific Rim Mining Corp in November 2013 and inherited the dispute.

The company's interest centred on the El Dorado project, where a mine operated between 1948 and 1953. All mining in the country ceased during the civil war between 1980 and 1992 before being reactivated. Pacific Rim, then a Canadian firm, acquired the interest in El Dorado in 2002.

In finding for El Salvador, the arbitration body said the long-running dispute imposed costs on the central American nation, which has a population of 6.1 million with 40 percent living in poverty in 2009 according to a World Bank estimate.

"Over more than five years and throughout the three phases of this arbitration, El Salvador has had to respond to Pac Rim's ever-changing story and legal arguments," the ICSID said, adding that Pac Rim's claims "lack any basis in fact or law". The company had at the start of the arbitration process argued that it had a "perfected right" to a concession because it had met all the requirements except for an environmental permit, "which it claimed El Salvador had unjustifiably failed to grant".

"Yet more than four years after making that promise, (the) claimant has failed to prove that it had a "perfected right" to such a concession," it said. "On the contrary, (the) claimant has been forced to admit that it neither owned nor had the required authorisation for the land in the area requested for the concession. (The) claimant has also been forced to admit that it never completed the required feasibility study."

OceanaGold said it was disappointed with the ruling and will review it in detail before deciding on its next steps.

The company's NZX-listed shares last traded at $4 and have gained about 30 per cent this year.